Democracy, Financial Development and Economic Growth in Nigeria
A well-operated democracy and efficient financial sector will deliver on the well-being of the citizenry through enhanced economic performance as may be reflected on the quantum increase on the Gross Domestic Product (GDP). Prior to 1999 the Nigeria political space was characterized by an interchange between democracy and military dictatorship. But the events of recent years show that the nation seems to have finally towed the path of sustained democratic governance notwithstanding several obstacles. Several policies have also been put in place in an attempt to overhaul and reposition the financial services industry. Some of these measures include the banking sector consolidation, capital market reform and measures aimed at addressing corporate governance issues. It is within this context that this work is situated. Hence, its objective is to investigate the extent democracy and financial developments have impacted on economic growth in Nigeria. The dynamic OLS (DOLS) estimator has been employed to estimate the long-run equilibrium relationship among the variables. In line with existing studies in the literature such as Alvarez & L6pez (2013) and Ayadi, Arbak, Naceur, & De Groen (2015), the three measures of financial development are Credit (as a % of GDP), broad money (as a % of GDP), and market capitalization (as a % of GDP). Using factor analysis, this study develops a composite index of financial development (FINDEV). A binary variable has been used to capture Democracy. The results show that Democracy and Financial Development have very high and significant impacts on Economic growth of Nigeria. This therefore, calls for invigorated efforts to strengthen democratic rule in Nigeria while at the same time ensuring that good policies targeting the financial sector are sustained.